Don't play roulette.
Is trading E-minis a zero sum game or not?
- Thread starter bankroll
- Start date
Don't play roulette.
And back to my original question... some interesting reads:
http://mises.org/daily/2381
http://mises.org/daily/2399/The-Social-Function-of-Futures-Markets
http://mises.org/daily/2381
http://mises.org/daily/2399/The-Social-Function-of-Futures-Markets
You are over-complicating a very simple concept...
This is a not a good sign.
Whether a game has a "social function" or not...
Has no mathematical relevance from the perspective of the competitor.
Successful traders have a near-instant understanding...
Of the basic gambling concepts underlying all such games.
Unsuccessful traders are "fooled by randomness"...
Or adopt bizarre philosophical beliefs...
And rarely get past that stage.
Sure, from a strict definition standpoint e-minis are a zero sum game in the sense that it is a cash-settled futures contract that is not fungible. The Insies match the Outsies.
A population of the trading participants are using that contract as a spread vehicle to capture a price differential between the ES and another highly correlated instrument, or even a large basket of instruments. Their strategy implies that they lose money in one position and make money in the other position ( s ). They are hedging price risk but they are speculators pure and simple. Arbitrage. These traders can do this on a highly automated basis using very high frequencies, or they can swing trade positions for days weeks months and years. The longer term speculators will occassionally use the calendar spread to roll their positions.
Another population of the trading participants are using the ES as a spread vehicle to hedge an adverse price move against a broad market equity position they are required by their business model to maintain. They would be termed institutionals or commercials. And they will also use the calendar spread to roll their positions - for stupid ridiculous size typically. And they will dynamically hedge their exposure on-the-fly as well.
In short, it is of no practical value for you to know on the surface of it. But it would shock most intraday traders to know how heavily spread traded the ES is and how diverse those spread traders are in terms of their holding timeframes and objectives.
A population of the trading participants are using that contract as a spread vehicle to capture a price differential between the ES and another highly correlated instrument, or even a large basket of instruments. Their strategy implies that they lose money in one position and make money in the other position ( s ). They are hedging price risk but they are speculators pure and simple. Arbitrage. These traders can do this on a highly automated basis using very high frequencies, or they can swing trade positions for days weeks months and years. The longer term speculators will occassionally use the calendar spread to roll their positions.
Another population of the trading participants are using the ES as a spread vehicle to hedge an adverse price move against a broad market equity position they are required by their business model to maintain. They would be termed institutionals or commercials. And they will also use the calendar spread to roll their positions - for stupid ridiculous size typically. And they will dynamically hedge their exposure on-the-fly as well.
In short, it is of no practical value for you to know on the surface of it. But it would shock most intraday traders to know how heavily spread traded the ES is and how diverse those spread traders are in terms of their holding timeframes and objectives.
Back to this again...
I understand poker that it's a game or gambling... and you beat other players by simply better money management...
(More here: http://www.elitetrader.com/vb/showthread.php?s=&threadid=244450)
But trading is not poker! Sure, you beat it by proper money management but it's not about playing hands but about charts, indicators and fundamentals... all in all: mass psychology of humankind.
So could you help me elaborate more on that?
Quote from bankroll:
Back to this again...
I understand poker that it's a game or gambling... and you beat other players by simply better money management...
(More here: http://www.elitetrader.com/vb/showthread.php?s=&threadid=244450)
But trading is not poker! Sure, you beat it by proper money management but it's not about playing hands but about charts, indicators and fundamentals... all in all: mass psychology of humankind.
So could you help me elaborate more on that?
The zero sum concept is incomplete.
To use poker, notice how it works when a new player joins or leaves.
Markets have a dynamic size and this alone precludes the zero sum concept that many people believe is in play.
Beliefs are going to be around for a long time. It is difficult for a person to recognize he has a belief that is a myth.